Fed Beige Book Warns Of 'Little Growth In The Month Ahead,' Sends Markets Lower

U.S. economic growth and business activity remains soft heading into 2023, according to the latest Federal Reserve Beige Book report on Wednesday.

What Is The Beige Book? The Beige Book report is a collection of anecdotal information compiled from each Federal Reserve Bank related to current economic conditions within their districts. The report is published eight times per year prior to a meeting by the Federal Open Market Committee to decide on monetary policy changes, such as interest rate adjustments.

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Why It's Important: In Wednesday's report, the Fed said economic activity has not changed since its last Beige Book release.

"Five Districts reported slight or modest increases in overall activity, six noted no change or slight declines, and one cited a significant decline. On balance, contacts generally expected little growth in the months ahead," the Fed said.

The next FOMC meeting takes place from Jan. 31 to Feb. 1. The bond market is currently pricing in a 94.3% chance the Fed will raise interest rates by another 0.25% following the meeting, which would bring its target fed funds rate up to a range of between 4.5% and 4.75%, its highest level since 2007.

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The SPDR S&P 500 ETF Trust SPY traded lower by 1% following the release of the Beige Book on concerns the Fed will be overly aggressive in its tightening measures and will tip the U.S. economy into a recession in 2023.

The Fed said Wednesday that employment is growing at a "modest to moderate" pace across most districts.

"With persistently tight labor markets, wage pressures remained elevated across Districts, though five Reserve Banks reported that these pressures had eased somewhat," the Fed said.

What's Next? Investors will be watching closely on Thursday when Fed Vice Chair Lael Brainard gives a speech at the University of Chicago Booth School of Business and on Friday when Fed Governor Christopher Waller gives a speech at the Council on Foreign Relations to see if either official gives any hints about the timing of a Fed tightening pause or even an eventual Fed pivot to rate cuts somewhere down the line.